A report from the Business Standard said retail investors in India who invest in mutual funds in order to access the stock markets are the victims of their own mistiming. Although they are making heavy redemptions, the report questions if they really making money from their investments. Experts interviewed by the news outlet said that the practice of buying mutual funds when they are priced high and selling when they are low will produce poor returns. Instead, they recommend continued investing when valuations are lower than the 15-year average instead of making redemptions.
Earlier this year, the Business Standard conducted an interview with HDFC Mutual Fund Executive Director and Chief Investment Officer Prashant Jain who said "A vast majority of investments in mutual funds have come in after the markets have gone up substantially and when the markets are expensive. On the other hand, redemptions are more at lower P/Es. Such an approach to investments does not lead to good returns."
According to the report, the financial year 2007-2008 posted the highest net inflows for the equity segment of the mutual fund industry at nearly Rs 47,000 crore. At that time, the average forward price to earning or P/E was pegged at 20.4. When the valuations plunged to a P/E of 14, the inflows also plunged and even made a nosedive to negative territory. An example given in the report was in fiscal year 2011 when Sensex average valuation was at 17.5 and the net outflows were Rs 13,100 crore. In 2013, valuations fell further to 14 but net outflows from equities also went up to a record high of Rs 14,600 crore.
Jain said, "What one does feel disappointed about is the mistiming of investments by a majority of investors." The Sensex crossed 20,000 many times for the fiscal year 2013-2014. Outflows of nearly Rs 10,000 crore were recorded in just seven months. The report said that while the indices have recovered their previous peaks, the high valuation differential is a cause for worry.
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